Prime Minister Patrick Manning yesterday took close to three hours to present his 2004/2005 Budget presentation. The package is $27.9 billion. Following is his speech.

I INTRODUCTION

Mr Speaker, I am pleased to present to this Honourable House and the Nation, the Appropriation Bill for fiscal year 2005.

I wish to thank the Ministers, Parliamentary Secretaries and other members of Government, as well as those organisations and individual citizens who made proposals for shaping this Budget.

We pay special tribute to all public officers who, with great dedication, produced the comprehensive documents that are an essential part of the Budget exercise.

Over the last two years this government has been taking action to create a better quality of life for all our citizens.

With this Budget, we maintain our unwavering focus on transforming Trinidad and Tobago into a developed country by the year 2020. Our theme for this year is “ensuring our future survival”.

Consistent with this theme, this budget represents another building block towards the social and economic development of the country.

Mr Speaker, experience world-wide has shown that accelerated and balanced development can only be achieved through deliberate action and planned intervention in support of market forces.

Let me therefore outline to the national community the three main pillars of our economic strategy.

Firstly, it is directed towards maximising returns from the energy sector, through increasing our participation in the value chain and raising the Government’s tax-take in a manner that is consistent with promoting a high level of investment in the sector.

The second pillar is to diversify the economy to reduce dependence on the energy sector and to achieve self-sustaining growth. Our diversification strategy focuses on six main sectors:

the traditional manufacturing sector

a new technologically based industrial sector

tourism

financial services

agriculture, and

the small-business sector

The third pillar of the Government’s economic strategy is ensuring that the benefits of economic growth and development are shared by all sections of the population.

This implies that growth must be accompanied by the creation of full-employment involving permanent jobs and a high quality of health, education and general welfare.

Mr Speaker, these objectives are attainable over the next few years. However, as we set the basis for medium term prosperity, this year’s budget will contain specific measures to improve the welfare of the poor, the aged, the less fortunate, the retired - those at the lowest rung of the income ladder. We feel strongly that no one should be left behind.

Additionally, Mr Speaker, this budget will emphasise steps to improve transparency and governance in the public sector.

We are committed to being a Government, accountable to the people and absolutely rigorous in the management of public funds. In this context, this budget will propose a transparent and effective mechanism to ensure that the rents from higher oil prices are not frittered away but are utilised for revenue stabilisation, for inter-generational transfers and for strategic high quality investments that will benefit the people of Trinidad and Tobago.

Mr Speaker, this budget is set in the full context of the International Economic Environment.

II REVIEW OF THE ECONOMY IN FISCAL YEAR 2004

The International Economy

Since the last budget presentation, positive developments have emerged in the international economy.

The two largest economies of the world are showing signs of recovery, and Emerging Asia is contributing significantly to the global upturn.

Global trade has increased sharply and recent Doha framework agreements provide new hope for a further expansion of international trade. Financial Markets are now more buoyant, and we have witnessed a return of financial flows to emerging markets and to some developing countries, including Trinidad and Tobago. The prospects are for a sustained global economic recovery.

After two years of recession, economic activity in the Caribbean had begun to rebound on the strength of the global economic recovery and an increase in tourism. Unfortunately, the onslaught wrought by hurricanes has set back this recovery and created major problems of rehabilitation and reconstruction, not to mention the tragic loss of lives.

As for the global outlook, there are several risks. The transition to higher interest rates coupled with persistently high energy prices, could pose challenges for most countries.

The threat of terrorism continues to impact negatively on most countries, undermining both investor and consumer confidence; while the AIDS pandemic continues its ominous spread in many regions of the world.

What this means, Mr Speaker, is that we need to continue to manage our economy with discipline and foresight. We must, improve our macro-economic framework and implement the essential structural reforms to ensure the continuing success of Trinidad and Tobago in a world of uncertainty and challenges.

Recent Macroeconomic Achievements

Mr Speaker, the economy of Trinidad and Tobago has continued to enjoy excellent health, thanks to high international energy prices and enlightened economic management. Our economic performance this year, augurs well for a rapid transformation towards Vision 2020.

Trinidad and Tobago recorded its tenth consecutive year of economic growth in 2003, and we are well on the way to another year of strong growth in 2004.

The rebased national accounts series, which uses the year 2000 as the base year instead of 1985 in order to capture our expanded energy sector, put real GDP growth in 2003 at 13.2 per cent, almost double the rate of the previous year. Economic growth in 2003 was led by the energy sector, whose expansion largely reflected the burgeoning activity in the petrochemical sub-sector and the commissioning of the third LNG plant.

Based on data for the first half of the year, real GDP growth is projected to be 6.2 per cent in 2004. While the energy sector continues to be the main driver, indicators suggest faster growth from the manufacturing, distribution and construction sectors.

Headline inflation continues to be under control at 3.8 per cent in 2003 and 3.3 per cent in the 12 months to August, 2004. However, we are concerned about the rapid rise in food prices, which reached 13.8 per cent in 2003, and 10.5 per cent in the 12 months to August 2004. This Mr Speaker we will address.

Mr Speaker, the latest data provided by the Central Statistical Office put the unemployment rate in the second quarter of 2004 at 7.8 per cent. This is the lowest rate since the PNM came to power in 1956. I must note that this is about the same rate quoted by the IMF, based on the standard ILO definition.

The CSO report estimates that some 22,000 jobs were created between the first and second quarters of 2004. Of these, 4,600 were in construction; 4,200 in banking, insurance, real estate and business services; 3,600 in manufacturing and 3,400 in the energy sector.

Mr Speaker, Trinidad and Tobago recorded an external trade surplus of US$ 1.6 billion in 2003. This was due largely to the sharp rise in gas exports, combined with an upswing in international oil and natural gas prices. I should note that Trinidad and Tobago also had a substantial trade surplus of US$952 million with our CARICOM neighbours.

Reflecting this strong export performance, the country’s external reserves position strengthened further and now stands at a healthy US$2.7 billion, the equivalent of 6.2 months of imports.

Preliminary data indicate that central government fiscal operations resulted in an overall surplus of $437.1 million or 0.6 per cent of GDP in fiscal year 2004, after taking into account transfers to the Revenue Stabilisation Fund, in the amount of $1,263.2 million.

Total Revenue and Grants received amounted to $20,448.7 million, or 28.4 per cent of GDP, this sum includes Repayment of Past Lending of $256.1 million.

Petroleum Revenues generated $6,916.0 million, or approximately one-third of total revenue. Taxes on income, excluding petroleum, amounted to $10,768.0 million. Taxes on Goods and Services including VAT provided $4,296.4 million while taxes on International Trade was $1,208.2 million.

For fiscal year 2004 total expenditure is estimated at $20,011.5 million, with Recurrent Expenditure estimated at $18,295.0 million and Capital Expenditure at $1,716.5 million.

This level of capital expenditure is the highest it has ever been and does not include additional investment by state agencies including state enterprises amounting to $2,713.8 million.

This increased expenditure results from the recently implemented quarterly release of funding to line Ministries and Departments, the increase in expenditure limits delegated to Permanent Secretaries under the Central Tenders Board Ordinance, and the building of capacity in the Public Service to implement projects.

Mr Speaker, we expect that as we build further project management capacity in the Public Service, expenditure under the PSIP will continue to grow.

Mr Speaker, it should be noted that Central Government debt, including contingent liabilities, fell from 55.9 per cent to 52.7 per cent of GDP. The external debt also declined from 16.2 per cent to 13.8 per cent of GDP. During the year, Mr Speaker, the Government took advantage of the low interest rate environment to refinance a sizeable proportion of its domestic debt.

Mr Speaker, as a significant endorsement of the strength of our economic performance and our prudent economic management, in June of this year, Standard and Poors upgraded Trinidad and Tobago’s credit rating on its foreign long-term debt to Triple B Plus (BBB+). This was the second successive upgrade for Trinidad and Tobago in just over one year.

I now turn to our programme for the new fiscal year.

III AGENDA 2005 - 2007

Mr Speaker, our budget plans for 2005 are firmly grounded in our long-term economic strategy and take into account our very favourable economic outlook for the next three years.

Our economic projections, endorsed by the recent IMF Mission, indicate that over the next three years Trinidad and Tobago will enter a period of even more dynamic growth. In 2005, real GDP growth is projected at 6.7 per cent, rising sharply to about 8-9 per cent in 2006, and stabilising around 5 to 6 per cent thereafter.

Growth in 2006 will be fuelled by the coming on stream of ALNG Train IV and several new projects at both Pt Lisas and the La Brea Industrial Estates. Non-energy sector growth is also expected to increase considerably during this period.

Construction activity will continue to be buoyant with our on-going house construction programme, intensified infrastructural development and private sector projects.

While buoyant oil and natural gas revenues and government capital spending are expected to put pressures on domestic prices, the Government’s target will be to contain the rate of inflation to around 4 per cent.

We will achieve this through the continued implementation of disciplined fiscal and monetary policies, which should facilitate a continued low interest rate environment, a further steady reduction in public sector debt as a per cent of GDP, and a continued strong foreign reserve position.

Vision 2020 - Sustainable Employment

Mr Speaker, one of our most important targets over the medium-term is the attainment of full employment—which means an unemployment rate of no more than 5 per cent. With the growth path we have charted, this is a realisable goal. We intend to create 34,000 additional jobs in three years with a focus on five main areas:

High-tech growth industries which will position us in the global knowledge-based industry;

Light-manufacturing which will further our diversification efforts and increase our productive capacity;

Agriculture which will provide an increasing proportion of the country’s food requirements;

Services Sector which will strength our diversification strategy; and

Construction that will provide homes for our people and expand our infrastructure network.

IV Main Growth Sectors

Energy & Energy Industries

Mr Speaker, the energy sector will continue to be the main engine of growth and development in Trinidad and Tobago, and as such continued development of this sector is critical to our attainment of developed country status as outlined in Vision 2020.

Our plans therefore are to leverage the energy sector to create conditions for sustainable growth and development.

Mr Speaker, the main elements of our policy with respect to the energy sector are:

i. to attract foreign investment in exploration activities so as to increase our hydrocarbon reserves;

ii. to increase the value added from our natural gas production capacity. This involves participation at every stage of the value chain including shipping, re-gasification terminals, the pipeline system and even the market place; and

iii. to increase the revenue take through the introduction of a new energy tax regime for oil and gas.

Exploration activities

In the exploration sub-sector, the Government has employed a sustained policy of attracting foreign investment to explore and increase our hydrocarbon reserves. Signing is imminent with respect to four (4) of the ten blocks that were offered for exploration in the 2003 Competitive Bid Round.

Value Added

The Government continued to promote its policy of diversification by encouraging a deepening and broadening of the domestic gas processing industry. Another dimension of this policy is its potential impact on the development of small and medium sized enterprises.

New petrochemical plants, namely, CNC II ammonia and the Atlas methanol, among the largest in the world, came on stream while construction of the M5 methanol plant by Methanol Holdings Trinidad Ltd. progressed and is scheduled for completion in June 2005.

We are advancing our gas processing activities further along the chemical chain to downstream ammonia and methanol products. We are taking steps to construct an ethylene petrochemical complex with a minimum of four plants, and a gas refinery complex comprising at least five plants. These investments offer great potential for spin-off industries and provide avenues to create and enhance linkages between the energy and non-energy sector.

Our focus is no longer on first stage processing in the natural gas industry and instead we are rigorously promoting second stage processing of petrochemicals. In this regard, Methanol Holding Trinidad Ltd. has been progressing plans to establish additional ammonia and urea plants as well as diversification into the production of melamine. Another local investor, in partnership with a foreign company, plans to go into the production of ammonia,urea, nitric acid and urea ammonia nitrate. It is anticipated that these plants would be phased over the 3-year period ending 2007.

Aluminium Smelter

The NEC and ALCOA signed a Memorandum of Understanding (MOU) for the construction of a 250,000 tonnes per year aluminium smelter including an anode plant and associated facilities.

Independent Power Producers (IPPs) have been short-listed to bid for an up to 750 MW power-plant to supply the smelter and provide for normal increases in electricity demand. The smelter is expected to come on stream by 2008 while the power plant will be in operation one year earlier.

The construction of an aluminium smelter in Trinidad and Tobago is predicated on the sourcing of alumina from both Jamaica and Suriname. This project has implications for the expansion of intra Caribbean business activity as it is anticipated that it will generate trade in the order of US$200 million on a yearly basis.

Further, as part of a new downstream aluminium industry, we have approved a joint venture arrangement between the National Energy Corporation (NEC) and SURAL, a Venezuelan company, to create an integrated automotive wheel development and production centre using their newly developed technology. Once proven to be commercially viable this joint venture will compete internationally in the Original Equipment Manufacturing (OEM) market for high-value added wheel products. This facility is to be located in the Wallerfield Industrial Park. The total investment will be US$87.5Mn.

This also recognises that even before the ink dries on the paper, the aluminium smelter capacity is being expanded to 322,000 tonnes per year.

Iron and Steel

Mr Speaker, there is increasing global demand for steel and the outlook is that this will persist over the long term. Consequently, plans are apace for an expansion of the local iron and steel industry.

NUCOR was granted approval to build a 1,500,000 tonnes per year mega DRI plant. Meanwhile, another international company, International Steel Group (ISG) is now concluding the purchase of the local Cliffs and Associates Ltd. plant, which has been closed since 2003. This plant will produce 350,000 tonnes per year of Hot Briquetted Iron (HBI).

It is anticipated that these additional iron and steel facilities would be in operation by the end of 2005. The companies have also pledged US$100,000 to fund the establishment of a Steel Development Authority to examine the downstream potential of the industry. The possibilities include the establishment of a foundry to manufacture parts for automobiles, valves for pumps and taps and a pipe mill to produce pipe for the oil and gas industry. The companies NUCOR, ISG, ISPAT and the Government have set a target of creating five thousand jobs in the Iron and Steel sector by 2010. In addition, Mr Speaker, the NUCOR plant also raises the very exciting possibility of a Steel Smelter at the Union Industrial estate at La Brea.

Liquefied Natural Gas

ALNG commenced construction of its fourth LNG Train at an estimated cost of US$1.1 Billion, during the second half of 2003. The construction of this 5.2 Million tonnes per annum plant is scheduled for completion in first quarter 2006.

Refinery Upgrade

Parroting will soon embark on a gasoline optimisation programme consisting of the construction of five plants over the next four years. Upon completion of this upgrade, Parroting will be well placed to be the premier supplier of high quality environmentally friendly gasolines in the region.

Gas-to-Liquids

An opportunity has arisen for Petrotrin to establish synergies with at least one gas-to-liquids facility, which will produce high quality, clean burning and environmentally friendly diesel fuel. Diesel fuel produced from the GTL plant will be blended with Petrotrin’s refinery diesel stream.

Local Content Development

Mr Speaker, the government shall ensure that all participants in the energy sector are selected, engaged and managed in a manner that supports the objective of maximum local content and participation.

The Permanent Local Content Committee established earlier this year will be responsible for developing specific subsidiary policies and strategies to ensure the transfer of technology and know-how to improve local skills, businesses and the capital market as well as other related matters.

Fabrication Yard and Dock Facilities

The Labidco fabrication yard is a prime example of an initiative to promote local content. In April, BHP Billiton’s 700-tonne Kairi-1 Platform was completed at the estate and loaded out from the adjoining La Brea Dock at the Port of Brighton. In addition, BPTT’s Cannonball Platform is currently under construction at the fabrication yard.

Concrete coating of pipelines has also found a home at the site thereby presenting another opportunity for the involvement of local labour and materials in the deepening of the energy industry.

Union Estate

In tandem with discussions taking place for the establishment of additional heavy industries, we have been pursuing the development of the 750-acre site at Union Estate. This estate is earmarked to accommodate new industries including the aluminium smelter and associated power plant and downstream petrochemical plants.

The development of the Union Estate for industries is consistent with Government policy to create new nodes for social and economic growth throughout the country. Additional sites for the location of energy-based industries are also being identified and in this regard, the NEC has been mandated to identify suitable locations between Pt Lisas and Icacos for the siting of plants.

Environmental Awareness

The maintenance of the environment remains high on the list of the Government priorities. In the continuation of this policy the National Petroleum Marketing Company will embark upon an upgrade programme for its entire retail network including the current gas stations, new and abandoned sites.

The programme will involve remediation work on 211 sites over a period of five years. The National Petroleum Marketing Company will in conjunction with the site remediation efforts replace all single wall tanks with double wall fibreglass tanks. The cost of the remediation and tank replacement programme is estimated at $414,000,000.

We will also be giving consideration to pursuing an initiative to distribute natural gas to homes in an attempt to enhance the quality of the environment for future generations. We now propose also to pursue with added vigour the use of natural gas as a motor fuel.

Manufacturing

Mr Speaker, our manufacturing sector is now a leader in the Caribbean. We intend to build on this, and position Trinidad and Tobago as a major manufacturing and commercial centre in Latin America and the Caribbean. We shall therefore maintain the appropriate domestic macro-economic environment including a competitive exchange rate, and provide infrastructure and institutional support for the sector.

Accordingly, the Government has begun implementation of the Trade Sector Support Programme to support manufacturers in enhancing their international competitiveness. This will be followed with a comprehensive business expansion and industrial restructuring programme formulated in conjunction with the various private sector organisations.

We are also targeting a number of specific areas for further commercial expansion including:

Yachting;

Fish and fish processing;

Merchant Marine;

Music and entertainment;

The Film Industry;

Printing and Packaging; and

Food and beverage.

In 2005, additional initiatives will include:

The continuing development of the Industrial Park at Wallerfield;

Development of an Investment Policy and a Services Trade Policy for Trinidad and Tobago;

A new Foreign Investment Act;

Establishment of a Trinidad and Tobago Trade Facilitation Company in Cuba to promote trade and investment activities between the two countries; and

Establishment of a Research and Development Fund to finance the development of unique products from Trinidad and Tobago for the global market.

Small and Medium Enterprises

In the Small and Medium Enterprise Sector, EXIMBANK, in collaboration with BDC, NEDCO and NAMDEVCO will execute an outreach programme to Small Business by providing information on market access as well as financing options for exports to overseas markets. In addition, the guarantee limit under the Loan Guarantee Programme administered by BDC will be increased from $250,000 to $500,000.

These initiatives will be supported by a new marketing thrust to be undertaken by an export marketing company.

Venture Capital

Mr Speaker, we believe the Venture Capital Regime in Trinidad and Tobago could play a greater role in financing economic activity and in the diversification of the economy. The Regime has remained at an embryonic stage, due largely to the restrictions prescribed in the Venture Capital Act, 1994. To correct this, we brought to the Parliament a number of amendments to the Act, to improve the effectiveness of the Venture Capital Regime.

We propose to amend the Act further to strengthen the effectiveness of the Regime and facilitate the development of the business sector, particularly those small and emerging businesses engaged in research and development, and innovative activities.